Internal Revenue Code:Sec. 1551. Disallowance of the benefits of the graduated corporate rates and accumulated earnings credit

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Contents


Location in Internal Revenue Code


     TITLE 26 - INTERNAL REVENUE CODE
      Subtitle A - Income Taxes
       CHAPTER 6 - CONSOLIDATED RETURNS
        Subchapter B - Related Rules
         PART I - IN GENERAL
       

Statute

    Sec. 1551. Disallowance of the benefits of the graduated corporate
        rates and accumulated earnings credit
 
    (a) In general
      If -
        (1) any corporation transfers, on or after January 1, 1951, and
      on or before June 12, 1963, all or part of its property (other
      than money) to a transferee corporation,
        (2) any corporation transfers, directly or indirectly, after
      June 12, 1963, all or part of its property (other than money) to
      a transferee corporation, or
        (3) five or fewer individuals who are in control of a
      corporation transfer, directly or indirectly, after June 12,
      1963, property (other than money) to a transferee corporation,
    and the transferee corporation was created for the purpose of
    acquiring such property or was not actively engaged in business at
    the time of such acquisition, and if after such transfer the
    transferor or transferors are in control of such transferee
    corporation during any part of the taxable year of such transferee
    corporation, then for such taxable year of such transferee
    corporation the Secretary may (except as may be otherwise
    determined under subsection (c)) disallow the benefits of the rates
    contained in section 11(b) which are lower than the highest rate
    specified in such section, or the accumulated earnings credit
    provided in paragraph (2) or (3) of section 535(c), unless such
    transferee corporation shall establish by the clear preponderance
    of the evidence that the securing of such benefits or credit was
    not a major purpose of such transfer.
    (b) Control
      For purposes of subsection (a), the term ''control'' means -
        (1) With respect to a transferee corporation described in
      subsection (a)(1) or (2), the ownership by the transferor
      corporation, its shareholders, or both, of stock possessing at
      least 80 percent of the total combined voting power of all
      classes of stock entitled to vote or at least 80 percent of the
      total value of shares of all classes of the stock; or
        (2) With respect to each corporation described in subsection
      (a)(3), the ownership by the five or fewer individuals described
      in such subsection of stock possessing -
          (A) at least 80 percent of the total combined voting power of
        all classes of stock entitled to vote or at least 80 percent of
        the total value of shares of all classes of the stock of each
        corporation, and
          (B) more than 50 percent of the total combined voting power
        of all classes of stock entitled to vote or more than 50
        percent of the total value of shares of all classes of stock of
        each corporation, taking into account the stock ownership of
        each such individual only to the extent such stock ownership is
        identical with respect to each such corporation.
    For purposes of this subsection, section 1563(e) shall apply in
    determining the ownership of stock.
    (c) Authority of the Secretary under this section
      The provisions of section 269(c) and the authority of the
    Secretary under such section, shall, to the extent not inconsistent
    with the provisions of this section, be applicable to this section.
 

Sources

    (Aug. 16, 1954, ch. 736, 68A Stat. 371; Pub. L. 85-866, title II,
    Sec. 205(a), Sept. 2, 1958, 72 Stat. 1680; Pub. L. 88-272, title
    II, Sec. 235(b), Feb. 26, 1964, 78 Stat. 125; Pub. L. 94-12, title
    III, Sec. 304(b), Mar. 29, 1975, 89 Stat. 45; Pub. L. 94-455, title
    XIX, Sec. 1901(a)(158), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat.
    1790, 1834; Pub. L. 95-600, title III, Sec. 301(b)(18)(A), (B),
    Nov. 6, 1978, 92 Stat. 2823; Pub. L. 97-34, title II, Sec.
    232(b)(2), Aug. 13, 1981, 95 Stat. 250; Pub. L. 99-514, title
    XVIII, Sec. 1899A(36), Oct. 22, 1986, 100 Stat. 2960.)
 

Miscellaneous

                                 AMENDMENTS
      1986 - Subsec. (c). Pub. L. 99-514 substituted ''section 269(c)''
    for ''section 269(b)''.
      1981 - Subsec. (a). Pub. L. 97-34 struck out ''$150,000'' before
    ''accumulated earnings credit''.
      1978 - Pub. L. 95-600, Sec. 301(b)(18)(B), substituted ''the
    benefits of the graduated corporate rates'' for ''surtax
    exemption'' in section catchline.
      Subsec. (a). Pub. L. 95-600, Sec. 301(b)(18)(A), in provisions
    following par. (3) substituted ''disallow the benefits of the rates
    contained in section 11(b) which are lower than the highest rate
    specified in such section'' for ''disallow the surtax exemption (as
    defined in section 11(d))'' and ''such benefits or'' for ''such
    exemption or''.
      1976 - Subsec. (a). Pub. L. 94-455 Sec. 1901(a)(158),
    1906(b)(13)(A), substituted ''subsection (c)'' for ''subsection
    (d)'' after ''determined under'' and struck out ''or his delegate''
    after ''Secretary''.
      1975 - Subsec. (a). Pub. L. 94-12 substituted ''$150,000'' for
    ''$100,000''.
      1964 - Pub. L. 88-272 amended section generally, and among other
    changes, designated provisions as subsecs. (a) to (c), included
    among corporations who are disallowed surtax exemption and
    accumulated earnings credit, corporations, and five or fewer
    individuals in charge of a corporation who, directly or indirectly,
    transfer property in contravention of subsec. (a) after June 12,
    1963, substituted provisions permitting the Secretary or his
    delegate to disallow the exemption or the earnings credit, for
    provisions which disallowed the exemption and the credit except as
    otherwise determined by the Secretary of his delegate, provisions
    that for purposes of determining ownership of stock, section
    1563(e) shall apply, for provisions which determined ownership in
    accordance with section 544, and defined control, with respect to
    corporations described in subsec. (a)(3), to include the additional
    test as stated in subsec. (b)(2)(B).
      1958 - Pub. L. 85-866 substituted ''$100,000'' for ''$60,000''.
                      EFFECTIVE DATE OF 1981 AMENDMENT
      Amendment by Pub. L. 97-34 applicable to taxable years beginning
    after Dec. 31, 1981, see section 232(c) of Pub. L. 97-34, set out
    as a note under section 535 of this title.
                      EFFECTIVE DATE OF 1978 AMENDMENT
      Amendment by Pub. L. 95-600 applicable to taxable years beginning
    after Dec. 31, 1978, see section 301(c) of Pub. L. 95-600, set out
    as a note under section 11 of this title.
                      EFFECTIVE DATE OF 1976 AMENDMENT
      Amendment by section 1901(a)(158) of Pub. L. 94-455 applicable
    with respect to taxable years beginning after Dec. 31, 1976, see
    section 1901(d) of Pub. L. 94-455, set out as a note under section
    2 of this title.
                      EFFECTIVE DATE OF 1975 AMENDMENT
      Amendment by Pub. L. 94-12 applicable to taxable years beginning
    after Dec. 31, 1974, see section 305(c) of Pub. L. 94-12, set out
    as a note under section 535 of this title.
                      EFFECTIVE DATE OF 1964 AMENDMENT
      Section 235(d) of Pub. L. 88-272 provided that: ''The amendments
    made by subsections (a) and (c) (enacting sections 1561 to 1563 of
    this title and amending sections 269, 441, and 802 of this title)
    shall apply with respect to taxable years ending after December 31,
    1963. The amendment made by subsection (b) (amending this section)
    shall apply with respect to transfers made after June 12, 1963.''
                      EFFECTIVE DATE OF 1958 AMENDMENT
      Amendment by Pub. L. 85-866 applicable with respect to taxable
    years beginning after Dec. 31, 1957, see section 205(b) of Pub. L.
    85-866, set out as a note under section 535 of this title.
             PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
      For provisions directing that if any amendments made by subtitle
    A or subtitle C of title XI (Sec. 1101-1147 and 1171-1177) or title
    XVIII (Sec. 1800-1899A) of Pub. L. 99-514 require an amendment to
    any plan, such plan amendment shall not be required to be made
    before the first plan year beginning on or after Jan. 1, 1989, see
    section 1140 of Pub. L. 99-514, as amended, set out as a note under
    section 401 of this title.
 

References

                   SECTION REFERRED TO IN OTHER SECTIONS
      This section is referred to in sections 12, 535 of this title.
 

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